Marc Jacobs, the celebrated designer, has been forced to pay $1m to extract himself from a case in which his company is alleged to have used bribes to secure exclusive use of a desirable venue for his fashion shows.

The company, Marc Jacobs International, was alleged to have paid $35,000 in cash and goods to the manager of the 26th Street Armory, a national historic landmark that acts as headquarters of New York's 69th infantry regiment. The payments, made over seven years up to 2007, were used to secure the designer access to the much sought-after location, which normally rents for $6,000 a day.

Marc Jacobs has enjoyed exclusive use of the armory in recent years, staging two shows during the all-important New York fashion week.

The manager, James Jackson, has pleaded guilty to grand larceny for demanding payments from Marc Jacobs and other clients using the space.

He faces up to 15 years in prison when he is sentenced next month.

The $1m payment in settlement of the legal action will go to New York state. In addition, the company has agreed to allow its operations to be monitored for two years by an outside firm.

New York's attorney general, Andrew Cuomo, said that tough action had been taken to protect the reputation of the fashion industry. "New York City is a global epicentre for fashion and cultural events, and we will not allow corruption and greed to tarnish one of our most lucrative industries."

He added that executives of Marc Jacobs had co-operated fully with the investigation and that the case was now closed with respect to the fashion house.

Jackson first came under suspicion when an exhibitor at the New York international carpet show complained that he had demanded payment for access to the armory space. An undercover officer was sent in and caught the superintendent on tape accepting bribes.

A Marc Jacobs spokesperson said: "We are pleased this matter has been resolved. We have already taken and will continue to take steps to avoid incidents of this nature in future."